If Congress does not take action before they adjourn in October, Medicare will cut physician payments by close to five percent on January 1, 2007, with cuts totaling as much as 37 percent through 2015. For California, these cuts mean that the state will loose $17.52 billion in Medicare payments to physicians between 2007-2015, and California physicians will have an average annual pay cut of about $20,000 per year (see the 2006 Medicare Trustees report). During this same time period, physician practice costs are expected to increase 22 percent.

Many physicians and doctor associations argue that these cuts are not only unsustainable, but also are not comparable to the payment updates for other Medicare providers, such as nursing homes, hospitals and Medicare Advantage plans. (see 2004 – 2007 Medicare payment updates for physicians versus other providers) For example, under current law hospital and nursing homes payments will continue to rise by more than three percent a year; payments to Medicare Advantage plans are estimated to increase by 7.1 percent in 2007. One of the reasons for this inequity in payment increases lies in the complex formula used for physician payment updates called the Sustainable Growth Rate (SGR). The SGR is based on the Gross Domestic Product rather than a medical cost index and does not reflect the rising costs in medicine. Both the American Medical Association and the California Medical Association propose that this current formula be replaced with the Medicare Economic Index, which is a market basket of medical practice costs used to reimburse all other provider groups in the Medicare program.

Beyond physician associations, there is a growing consensus that this SGR formula needs to be replaced. The Medicare Payment Advisory Commission (MedPAC) has recommended that the SGR be replaced with a system that reflects increases in practice costs. The Centers for Medicare and Medicaid Services (CMS) has stated that the current payment system is not sustainable. (See CMS letter to MedPAC, April 7, 2006) Representative Michael Burgess also recently introduced a bill (HR 5866) that would replace the SGR formula with an annual increase in Medicare physician reimbursements based on the Medicare Economic Index. The legislation would reduce the MEI by one percentage point, a move that would result in a 2.7% increase in Medicare physician reimbursements for 2007.

In addition, projected cuts to physician payments could negatively affect beneficiaries’ access to health care. According to a 2005 MedPAC survey, 25 percent of Medicare beneficiaries looking for a new primary care physician had some problem finding one, and a growing number had a “big problem.” Results from an American Medical Association (AMA) Member Connect Survey also reflect this trend. Of the more than 8,000 physician respondents, nearly half (45 percent) said they would either decrease or stop accepting new Medicare patients in 2007 if payments are cut as projected for 2007; 50 percent would defer the purchase if information technology.

Results of a CMA survey of California physicians are even bleaker. In this survey, 60 percent of the respondents told CMA that they would no longer be able to accept new Medicare patients if the projected Medicare payment cuts take place in the next 6-8 years. Forty percent of the 490 respondents said they would be forced to withdraw from the Medicare program entirely, and 10 percent of physicians felt strongly enough about the Medicare cuts that they wrote in (this wasn’t a question in the survey) that they would be forced to quit the practice of medicine because of these cuts. And if the cuts do take place, those California physicians who decide to continue treating Medicare patients may not be able to so simply because Medicare payments no longer keep pace with the cost of providing care.

These AMA and CMA survey results, however, contrast with the findings of a recent General Accounting Office (GAO) report, Medicare Physician Services: Use of Services Increasing Nationwide and Relatively Few Beneficiaries Report Major Access Problems. This report found that from 2000 to 2004, the number of beneficiaries reporting major difficulties in finding a personal physician remained relatively constant. Nationwide, no more than about seven percent of beneficiaries reported a major access difficulty. Also, from April 2000 to April 2005, an increasing proportion of beneficiaries received physician services and an increasing number of physician services were provided. In order to unravel the cause of the discrepancies between the AMA/CMA and GAO findings, it would be important to examine who the respondents and non-respondents were in each survey, and how the data was gathered and analyzed. Also, one difference in the surveys is that the GAO based its finding on past data/trends, whereas the AMA and CMA surveys focused more on future trends should the scheduled Medicare payment cuts take place.

Yet regardless of these discrepancies, at least one California county is experiencing a change in beneficiary access to physicians due to low Medicare payments. As of June 1, 2006, doctors in Santa Cruz County are no longer accepting new Medicare patients. Beneficiaries living in this county without a doctor must travel at least 25 miles to a neighboring county for care. Also, according to a recent news article, at least 9 other California counties, from Sacramento to San Luis Obispo, may follow in Santa Cruz County’s footsteps. The problem in these counties arises because doctors there practice in high-cost urban areas but are lumped with low-cost rural counties when average payments are calculated by CMS.

Another potential consequence of continued payment cuts for physicians is the affect their rates have on other programs. For example, TRICARE, which provides health insurance for military families and retirees, ties its physician payment rates to Medicare, as do some state Medicaid programs. Thus, Medicare cuts trigger TRICARE and Medicaid cuts as well.

About Karen Fletcher

Our blogger Karen J. Fletcher is CHA's publications consultant. She provides technical expertise, writing and research on Medicare, health disparities and other health care issues. With a Masters in Public Health from UC Berkeley, she serves in health advocacy as a trainer and consultant. See her current articles.

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